Volumes in Q4 to be flat, but will be better than Q3: Dabur

FMCG major Dabur reported a 7.5 percent fall in consolidated net profit to Rs 293.76 crore for the third quarter of current fiscal. Net sales too declined 6.08 percent to Rs 1,847.67 crore. Domestic volume fell 5 percent on back of demonetisation and other factors. Lalit Malik, CFO of the company said volumes are expected to improve going ahead. Change in product mix on back of weather change could push up volumes. Margins were under pressure due to rise in material cost and also, higher consumer promotion. In Q4, volumes will be flat, but the company will recover losses seen in Q3. On competition with Baba Ramdev promoted Patanjali, Malik said that Dabur did lose some market share in honey and chavanprash, but it doesn’t plan to take price cuts. Below is the verbatim transcript of Lalit Malik’s interview to Anuj Singhal & Sonia Shenoy on CNBC-TV18.Sonia: If you can just start off by telling us about the volume growth itself that has disappointed the street this time, but given that demonetisation impact continues in the sector should be expect more weakness in volumes going ahead?A: I think what we saw was on account of demonetisation, we saw the impact in the month of November and it started becoming better in the month of December. But November saw a big drop. Between the categories what we saw was that in the juices category we have seen a very healthy growth of 50 percent but other categories in view of the distribution with the wholesaler and retailer we have seen the drop and that is why it is reflected in the volume at minus 5 percent. Going forward, we do expect it to improve though I think it will depend upon how quickly it will be back to normal. But, certainly it will be quarter three and we expect it to improve going forward in quarter four.Anuj: What has been the trend in January because we will get fair bit of ideas? It is the last day of January, so October to December was minus 5 percent how has January shaped up in terms of volume growth?A: It is better as I said I will not be able to quantify, but certainly I can save it is better than quarter three. So, there is improvement and at the same time in view of the winter there is going to be change in the product mix. So, we will certainly see better quantity or volume as compared to what we saw in quarter three. Sonia: Can you tell us a little bit about the raw material prices as well. Is there still pressure on that front and how do you expect the margins to shape up in the next couple of quarters?A: What we saw in quarter three was a pressure on account of material cost as compared to the previous year and primarily on two counts. One on account of product mix, what we saw was in the food categories there was a high growth which is low margin compared to the other healthcare categories which is high margin growth. So, product mix was one reason why we saw the material cost going high. The second one was on account of the consumer promotion that was given in quarter three at a high level and as a result of that we saw material cost going high. Third one is of course we have seen some inflationary pressure in some of the commodities like sugar etc. so that has contributed to the material cost going high. So, going forward certainly we will not have the consumer promotion to that extent and our product mix will improve. So, there will be pressure on the material on account of inflation, but overall we do see there would be some improvement going forward in quarter four.Anuj: If I am not wrong you had told us in November that companies like yourself are cutting advertising expenses by up to 50 percent. So, how do the numbers reflect and would you again go back to normal run rate for advertising because that will have then the impact on margin as well?A: What we have seen is that in quarter three there has been decline in the media expenses when we look at the advertisement. It is has a dual component one is the media expenses and another is the consumer promotion and trade promotion. So, what we did was that we certainly reduced the media expenditure but we increased the consumer promotion and trade promotion expenditure on specific categories. As a result of it we see the media expense that is reflected under the IND-AS accounting standards is showing a decline. Now going forward, we will be reducing the consumer promotion, but increasing the media so overall bucket will remain more or less consistent. But there will be change in the mix between the media expense and the promotion expenses. Sonia: You did mentioned that volumes in quarter four will be better than quarter three but quarter three saw a volume fall of five percent, so are we still expecting volumes to fall next quarter and when do you see growth returned to the sector as well as to your own company in terms of volumes?A: We see in quarter four it is going to be more flattish, but we will be recovering the decline that we saw in quarter three. There would be some positive, but I think it is too early for us to confirm that but there would be slight positive that we will see in terms of the growth. But going forward, we will see in quarter one and quarter two to be growth depending upon the timing of GST and provision of GST that will come in we will certainly see some positive trend and growth coming going forward in next fiscal. Anuj: What has been the impact of Patanjali the growth that we have seen in their business on yours? We can clearly see it for example on television that some of the ad expenses on toothpaste for example have gone up so if you could give us some more details on that?A: I think as far as the competition from Patanjali is concerned our toothpaste we have been gaining market shares so there is no adverse impact on that. But, in the category of honey and to some extent healthcare Chyawanprash we have seen some impact on our sales on account of the competition. We have taken our measures in order to bounce back or come back to our market share and growth, so therefore we are working towards it. But, there has been short-term impact on honey and to some extent on Chyawanprash. Anuj: In both these categories there is quite a bit of price differential so do you get a sense you will have to cut down on prices or is that something that you are not looking at?A: I think we are not here into the price game as such but at the same time we provide value to consumer. Our quality is the best in class and at the same time we are giving the promotional issues which if we were to look at the value it certainly is better than the competition that is offering. So, value to the consumer is certainly better, but we do not believe in the price cut for the product.